Citigroup’s $13bn writedown raises fears of a crisis beyond Wall Street

America’s leading banks continued to announce hefty losses yesterday as Citigroup reported a further writedown of more than $13 billion (£7.5 billion) for the third quarter and Merrill Lynch took another $9.5 billion hit.

The latest writedowns brought Citigroup’s total hit from the credit crunch to about $60 billion and left it with an overall group loss, of $2.8 billion, for the fourth consecutive quarter.

Merrill Lynch, which has clocked up about $50 billion of credit-crunch related charges, reported its fifth consecutive quarterly group loss, of $5.15 billion, for the third quarter. The group agreed a fire sale to Bank of America last month to boost its capital reserves.

Citigroup’s loss was larger than the $2.2 billion deficit the bank recorded the year before, but considerably smaller than the $3.8 billion loss analysts had collectively forecast for the period. Group revenues fell 23 per cent to $16.7 billion.

Although Citigroup’s results came in ahead of expectations, analysts were concerned that they provided further evidence that the financial crisis was spreading from Wall Street to Main Street.

Isabel Schauerte, an analyst at Celente, a financial research firm in Boston, said: “Citi’s third-quarter performance is another manifestation that the misery has spread beyond investment banking units and into banks’ customer divisions.

“While mortgage-related writedowns have somewhat of a cathartic character by now, the deterioration of consumer credit emerges as the next main front.”

Growing concern among investors about the extent to which the Wall Street crisis is spreading into the broader economy pushed Citigroup’s shares down by $1.15, or 7.21 per cent, to $15.09 in midday New York trading.

Citigroup, which said it cut about 11,000 positions during the third quarter and 23,000 in the first nine months of the year, wrote down $4.4 billion in investments, recorded $4.9 billion in credit losses, and took a $3.9 billion charge to boost reserves.

The bulk of the credit losses and the $3.9 billion charge came in Citigroup’s consumer banking and credit card divisions, the group said. The bank now employs about 350,000 staff worldwide.

Vikram Pandit, Citigroup’s chief executive, said: “While our third quarter results reflect both a difficult environment as well as continued writedowns on our legacy assets, we are making excellent progress on the parts of our business we control, including expense reduction, head-count, and balance sheet and capital management. We expect these improvements will enable us to realise the full earnings power of our franchise as the economy stabilises.”

Merrill Lynch’s worse than expected loss equates to $5.58 a share, and compares with a loss of $2.82 a share a year earlier and an analyst consensus forecast of $5.18 a share.

The latest round of losses recorded by the bank includes $5.7 billion in writedowns on a sale of collateralised debt obligations, or pools of bonds, as well as $3.8 billion in writedowns of property-related assets and government-sponsored entities.

Merrill’s losses were partly offset by $7.1 billion in gains from the sale of its stake in Bloomberg, the financial

Tom Bawden in New York
October 16, 2008

Source: The Times

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